Device and method of handling cellular network and wireless local area network radio level integration with internet protocol security tunnel

A communication device of handling a CWIP comprises instructions of having a cellular connection with a base station (BS) of a cellular network; receiving a first Internet Protocol (IP) address from the BS via the cellular connection; receiving a CWIP configuration configuring a second IP address for establishing a first IPsec tunnel for the CWIP from the BS; having a WLAN connection with a WLAN, and receiving a third IP address for transmitting at least one IP packet via the WLAN, from the WLAN via the WLAN connection; establishing the first IPsec tunnel via the WLAN connection to the second IP address by using the third IP address; generating a first IP packet of the at least one IP packet and setting a source IP address of the first IP packet to the first IP address; and transmitting the first IP packet to the BS via the first IPsec tunnel.